A last-minute bill rushed Wednesday onto the floor of the California Assembly could break a months-long impasse that has endangered nearly $115 million in transit funds for Orange County.

That impasse has pitted Gov. Jerry Brown against the U.S. Department of Labor over California’s recent pension-reform efforts, with hundreds of millions of dollars in federal grants at stake.

The bill, backed by Brown and carried by three fellow Democrats, would grant transit workers a one-year exemption from the new pension rules. That would give the state time to take its case to the courts.

“Federal transit money creates jobs, and this legislation keeps those funds flowing while allowing the state to defend in court our landmark pension reforms,” Brown said in a written statement.

The dispute centers on a California law, passed last year, that put limits on the pensions that public agencies can offer their new hires. Labor unions representing thousands of California transit workers said it violated their collective-bargaining rights by rolling back benefits for future employees without negotiation.

They invoked a federal law that requires the Department of Labor to sign off on transit grants – and to ensure that the agencies receiving them uphold the collective-bargaining rights of their workers. The Labor Department took up the issue and refused to certify California projects while it weighed whether the state’s pension reforms violate federal labor law, freezing an estimated $1.6 billion in grants.

That included $114.8 million awarded to Orange County for buses, an Anaheim transportation hub and other transit projects. Without those federal dollars, the Orange County Transportation Authority postponed the planned replacement of nearly 200 buses.

The OCTA has been using its own funds to cover for most of the postponed grants. But chief executive Darrell Johnson told board members last week that the outright loss of those grants would mean service cuts and project delays. “It absolutely will impact the riders at some point,” he said.

On Wednesday, the Labor Department notified Sacramento’s transit agency that it had determined the pension reforms violate federal labor law. That put as much as $40 million in grants to Sacramento at risk, according to state estimates, and served notice to other transit agencies around the state.

In response, Brown announced the bill that would exempt transit workers from the pension-reform law for one year. That exemption becomes permanent if a court rules the state’s pension reforms do not comply with the Labor Department’s requirements, said Sean MacNeil, the chief of staff for the bill’s lead author, Assemblyman Richard Bloom, D-Santa Monica.

Brown also proposed a $26 million loan program to help transit agencies at risk of losing their federal funds. And he promised to take the fight to the courts to defend the pension-reform law there.

The bill was to be introduced Wednesday, little more than a week before the end of the legislative session.

“We are gratified that our work with the state will result in legislation being introduced,” Department of Labor spokesman Michael Trupo said in a statement. “While each grant application must be reviewed individually, if legislation along the lines of what we have discussed with the governor’s office is enacted, it will temporarily resolve the conflict” between state and federal law.

The standoff between the state and federal governments has also brought negotiations to a standstill between the OCTA and its bus drivers, whose contract expired in April. The two sides have agreed on work rules and other parts of a new contract, but can’t move forward on economic provisions – such as benefits – without a resolution of the pension-reform protest.

For now, the drivers are working under temporary contract extensions that the two sides sign every month.

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